25th Feb 2025 09:00
(Alliance News) - Smith & Nephew PLC on Tuesday said it expects a "step-up" in returns in 2025, and significant margin expansion, after delivering better-than-expected fourth quarter results.
The Watford, England-based medical equipment manufacturing company said pretax profit leapt 72% to USD498 million in 2024 from USD290 million in 2023. Diluted earnings per share increased 56% to 47.0 US cents from USD30.1 cents. Trading profit increased 8.2% to USD1.05 billion from USD970 million.
Revenue rose 4.7% to USD5.81 billion in 2024 from USD5.55 billion in 2023. In the fourth quarter alone, revenue increased 7.8% to USD1.57 billion from USD1.46 billion, beating market consensus of USD1.54 billion.
Smith & Nephew reported a strong finish to the year in all regions except China, which was a 280-basis-point headwind to group underlying revenue growth, it said.
Orthopaedics overall growth of 6.0% in the recent quarter was ahead of the 4.9% market consensus. This included a continued improvement in US reconstruction performance with underlying and reported revenue growth of 5.4% for knee implants and 7.6% for hip implants.
Chief Executive Deepak Nath said: "Smith & Nephew's transformation remains on track with the 12-point plan increasingly delivering better financial performance. Revenue growth is consistently above historical levels following operational and commercial improvements."
In response, S&N jumped 9.0% to 1,137.00 pence each in London on Tuesday morning. It was the best performing stock in the FTSE 100 index, which itself was marginally lower.
Operating profit margin improved to 11.3% in 2024 from 7.7% a year prior, and trading profit margin to 18.1% from 17.5%. Free cash flow multiplied to USD551 million from USD129 million. Adjusted return on invested capital improved to 7.4% from 5.9%, with further progress expected in 2025.
In a statement, Smith & Nephew said it is delivering an improved trading profit margin in the face of significant headwinds, strong and substantially improved cash generation, and increased return on invested capital.
"Much of the 12-point plan is complete, and we have addressed the structural weaknesses that were holding back the group. There is much more to be done to drive productivity and asset efficiency to their full potential, with significant additional benefit expected to follow in 2025 and beyond," the company said.
CEO Nath said more than 60% of revenue growth in 2024 came from products launched in the last five years. "We have launched nearly 50 new products over the last three years and have an exciting pipeline for 2025."
Looking ahead, S&N expects 2025 underlying revenue growth to be around 5%, with reported growth of around 4.8%. It expects first-quarter underlying revenue growth to be between 1% and 2% primarily due to continued China headwinds and one less trading day, with growth accelerating thereafter.
Full-year trading profit margin is expected in the range of 19% to 20%, with margin stronger in the second half than in the first, as the impact of China headwinds reduce and operational savings are delivered, the company said.
Continued momentum and efficiency gains are expected to drive further margin expansion beyond 2025, S&N added.
CEO Nath said: "There is much more to be done, but we have made solid progress fixing the foundations and expect a step-up in returns in 2025, including significant margin expansion. We are confident that this will be the year when transformation starts to unlock substantial value for our shareholders."
S&N declared an unchanged full year dividend of 37.5 cents per share.
By Jeremy Cutler, Alliance News reporter
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